Just ahead of listing, Spencer’s Retail pulls off turnaround story

Spencer’s performance has shown a steady improvement over the last few years, as the company shut its loss-making stores and focused on profitable expansion. For the first time in Q2FY18, the company reported EBITDA of Rs 2 crore.

Spencer’s Retail, the retailing vertical of Calcutta Electric Supply Corporation (CESC), is starting to turn the corner just months before it gets listed on the stock exchanges as a separate entity through a demerger process. CESC has said a meeting of shareholders to discuss the demerger is scheduled for December 15, and will be convened by the NCLT. If the proposal goes through, Spencer’s Retail could get listed before the end of the current financial year.

As clearances from Sebi and the stock exchanges have already been received, everything depends on the NCLT’s final order and the approval from shareholders. That the performance of the company has improved will only set it up for a better listing. Arvind Vats, chief financial officer, Spencer’s Retail, told FE, “Spencer’s Retail has broken even at the EBITDA level and we expect its performance to improve going forward. If the demerger gets through, Spencer’s Retail will automatically get listed and we expect it to happen by fourth quarter of this financial year.”
According to a Kotak report, CESC’s retail business is valued at 0.7-1 time of sales, which indicate a steep discount to listed peers.

Spencer’s performance has shown a steady improvement over the last few years, as the company shut its loss-making stores and focused on profitable expansion. For the first time in Q2FY18, the company reported EBITDA of Rs 2 crore. However, the company’s average sales per sq ft in Q2FY18 was down by 5% to Rs 1,507. Anuj Upadhyay, an analyst at ICICI Direct, said in a report, “GST-led destocking impacted Spencer’s growth in Q2FY18 and the business is expected to get back to normalcy in H2FY18. Same-store-sales-growth (SSG) declined during the quarter on account of destocking, impact in certain categories during GST transition, change in liquor licence policy in Andhra Pradesh and Telengana and major renovation and construction work around couple of large Hypers. Sales for FY18E is expected at Rs 2,448 crore.”

At present, the Spencer’s Retail operates 125 stores across 35 cities. The company has 40 Hypermarkets (ranging between 20,000 sq ft and 35,000 sq ft), 17 Super markets (5,000 sq ft to 10,000 sq ft) and 68 Daily stores (2,000 sq ft to 3,500 sq ft). Going forward the company plans to roll out 50-60 Hypermarket stores over the next four years.

The other major bet for Spencer’s is its omni-channel presence. The retailer has its own e-commerce platform Omnipresent Retail India Pvt Ltd through a 100% subsidiary, to facilitate online ordering and home delivery of groceries and other items.
CESC in Q4FY17 had announced demerger of its businesses across power generation, power distribution, Spencer’s Retail, CESC Ventures (First Source, property, FMCG). The existing shareholder will be entitled to receive 1 share of each of the demerged businesses for every 1 share held in the pre-demerger entity.

According to the ICICI Direct report, Spencer’s has become debt free as the related party debt of `280 crore (as on FY16) has been taken over by the parent entity. The current paid-up capital of CESC Ltd is `132 crore, which would increase to `198 crore by way of gift (this cannot be termed as bonus).
Shareholders will get additional value worth `66 crore when they get fresh shares of the four demerged entities. In the demerged entities, paid-up capital in CESC (distribution) will be `66 crore, while that of Haldia Energy, Spencer’s and the entity for all other ventures will be `66 crore, `40 crore and `26 crore, respectively.